Shares of data warehousing firm Snowflake (SNOW) have been snowballing lower alongside most other high-tech growth stocks these days. Now down almost 54% from its all-time high of $429 per share, investors remain divided about the top data cloud play. I am neutral on the stock.
There's no denying the incredible market opportunity, as the company better caters to the needs of its users across a wide variety of niches. The amount of data being generated is also a significant propellant for the company that's still riding on some powerful secular tailwinds.
Undoubtedly, data is quickly becoming one of the most precious resources for many firms. With CEO Frank Slootman coining the concept of "the time value of data," there has never been a better time for firms to leverage the power of structured and unstructured data. Over time, the amount of data collected will grow, as too will analytics and business intelligence tools to transform such data into something useful.
Arguably, Snowflake is one of the most exciting tech stocks in the market. Still, rates are rising, and although Snowflake may be closing in on a pathway towards profitability, its valuation remains cringe-worthy at a time like this.
Snowflake Stock: Snowballing Towards Lows
There's no question that premium growth should come with a hefty price tag, but even after the stock got cut in half, a 49 times sales multiple should ring alarm bells in the ears of value-conscious investors.
That's not just expensive; it's absurdly expensive, even for the best growth stock in this market, if rates surpass 3% over the coming months. Arguably, SNOW stock could lose another half of its value and still be one of the most expensive stocks out there.
While I am incredibly bullish on the company's longer-term prospects, I don't yet see value in the name at these heights, especially after the recent post-earnings revenue growth downgrade.
While there's still a ton of serious growth, the company needs to stay on its toes, as it's not the only game in town with the rise of data and AI firm Databricks.
Snowflake Stays on Its Toes with Intriguing Acquisition
Whether Snowflake has met its match with Databricks remains to be seen. If public cloud providers collaborated, another competitive threat could also emerge. Given the intense competition between the Big Three public cloud players, though, such collaboration seems very doubtful. They have a lot more to gain by getting customers to stick around.
Regardless, Snowflake needs to stay on its toes to be the king of big data. Though I do not doubt Slootman's talents, I remain neutral, as the stock still seems vulnerable to further downside in a continuation of the tech sell-off that could drag into year's end.
Further, Databricks is a rival that's to be taken seriously. Like Snowflake, the firm exploded onto the scene with its intriguing data warehousing and lake offerings. Snowflake needs to keep up its innovative pace to fend off such a rival.
Fortunately, the acquisition of Streamlit looks like a step in the right direction. As an open-source app-building tool leveraging the Python programming language, the acquisition won't jolt revenues anytime soon. On its own, Streamlit didn't even make much in sales. However, the deal could act as a catalyst for increased consumption on the Snowflake platform.
Indeed, Slootman's consumer-first approach is evidenced by Snowflake's unique, albeit questionable, decision to use a consumption-based pricing model instead of a subscription. In prior pieces, I noted that such pricing would likely be the next frontier for Software-as-a-Service (SaaS) companies.
Dismiss Streamlit, if you will, given its meager sales, but it's a compelling tool that could one day act as a source of a moat for Snowflake as competition grows to get a piece of the big market opportunity to be had in the data cloud.
Snowflake Launches Retail Data Cloud and Healthcare & Life Sciences Data Cloud
Data Warehousing, Data Lake, and Data Science are where Snowflake shines. To unlock next-level growth, though, the firm will need to double down in analytics and business intelligence solutions.
The industry-focused data clouds, I believe, could bolster interest in the firm's incredible platform. Indeed, the possibilities are endless as the company looks to cater to more specific use cases.
The retail and healthcare data clouds are likely just the start. Such exciting initiatives haven't been able to stop the bleeding in SNOW stock, though. In any case, Slootman and his team already seem focused on where the puck is headed next. That alone should allow it to fend off rivals over the coming years.
Wall Street's Take
Turning to Wall Street, SNOW stock comes in as a Moderate Buy. Out of 23 analyst ratings, there are 14 Buy recommendations, eight Hold recommendations, and one Sell recommendation.
The average Snowflake price target is $313.86, implying upside potential of 58.8%. Analyst price targets range from a low of $190.00 per share to a high of $415.00 per share.
The Bottom Line on SNOW Stock
Snowflake stock is rolling over and could test the $160 levels in a few weeks as risk appetite fades. As cutting edge as Snowflake is, the company has competitors, and its growth rate could take a hit as consumption-based models are known to be less smooth than the traditional subscription-based ones.
I'd keep Snowflake on watch for now, as the odds of a much better entry point on the horizon seem high.
In short, it is an excellent growth company but still wildly expensive.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
